Brent hovers below $110, U.S. fiscal worries weigh

Tue Nov 27, 2012 9:54pm EST

Related Topics

* U.S. lawmakers offer little confidence on budget talks

* Egypt tensions support oil prices

* Oil price rally on Middle East tension may hurt econ recovery -broker

* Coming Up: U.S. EIA stocks report; 1530 GMT

By Luke Pachymuthu

SINGAPORE, Nov 28 (Reuters) - Brent crude steadied below $110 per barrel on Wednesday, not far from a one-week low hit in the previous session as investors nervously eyed talks to head off a looming fiscal disaster in the United States, the world's top oil consumer.

Supply worries due to tensions in Egypt, however, cushioned prices that were locked in a tight range -- swinging from a drop of 10 cents to a rise of 9 cents so far in the session.

Brent crude edged down 1 cent to $109.86 per barrel by 0229 GMT, after dropping to $109.31 on Tuesday -- its lowest since Nov. 20. U.S. crude was down 5 cents at $87.13 per barrel, extending its slide into a third straight session.

Concerns over whether U.S. lawmakers were putting the world's largest economy at risk of a recession by failing to make headway in their budget talks are weighing on financial markets, analysts said.

"The global economy, China, Europe, needs the U.S. economy to grow, and that is why the pressure to get this deal done is greater than before," said Carl Larry, a derivatives broker at the Houston-based Atlas Commodities. "The global economy can't afford for America to slip back into a recession."

The U.S. Congress pushed toward a compromise on Tuesday on a deal to avert the "fiscal cliff" of tax increases and spending cuts due to take effect next year, but an agreement still appeared elusive.

Further depressing the outlook for oil demand, the Organization for Economic Cooperation and Development cut its global growth forecasts, warning that the debt crisis in the recession-riddled euro zone is the greatest threat to the world economy.

"Another reason why we are seeing some swing in prices is because trading volumes are looking light, we aren't quite back to levels prior to the holidays," Larry said.

MIDDLE EAST TENSIONS

The escalating political crisis in Egypt that has triggered worries about potential disruption to supplies in the Middle East, however, continued to prop up oil prices.

Tens of thousands of Egyptians rallied on Tuesday against President Mohamed Mursi in one of the biggest outpourings of protest since Hosni Mubarak's overthrow, accusing the Islamist leader of seeking to impose a new era of autocracy.

"When you see the protests on the streets in Greece the markets drop, but when you see the thousands of people gather in the streets of Egypt, the markets get nervous and jump," Larry said. "Protests in Egypt and tensions in the Middle East send prices upwards and make it even more difficult for the global economy to sustain a recovery."

Investors are now eyeing data on U.S. crude stockpiles from the U.S. Energy Information Administration later in the day for hints on demand from the key consumer.

Data released by the American Petroleum Institute late Tuesday showed crude stocks rose by 2 million barrels for the week ended Nov. 23. Gasoline stocks rose 2.3 million barrels and distillate stocks rose 268,000 barrels, the API said.

Crude stocks were expected to be up only 300,000 barrels and gasoline up 900,000 barrels, a Reuters survey showed. (Editing by Himani Sarkar)

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